Act Now Before the Tax Laws Change

Every time that Congress examines the tax code, Realtors get nervous, and we are probably not the only ones.  Any change causes uncertainty, and any increase causes disruption for those who have planned transactions based on current laws.  We have already been warned that certain taxes are going up next year, including the long-term capital gains tax.  All we need to know really is how big the Federal debt has become, and we can logically conclude that something needs to be done in the not-too-distant future about raising Federal revenue.  The short answer:  Taxes will likely go up in some form, regardless of the outcome of the election.  It's best to maximize income now, especially in the case of capital gains.

One tax change that has not been as widely broadcasted is the expiration on January 1st of the Recovery Act provision allowing people doing short sales to avoid being taxed on forgiveness of debt.  The IRS Code considers income from any source, including the cancellation of money owed to someone, to be taxable, and it will go back to collecting those taxes in 2013.  The short answer:  If you are in the middle of a short sale, or you think you are eligible for one and you can do it very quickly, try hard to get it done before the end of this calendar year.  If you are buying a property, try to take advantage of this by doing everything you can to get your sale closed in 2012, and perhaps you can negotiate for part of this benefit to come to you in some way, by lowering the price, or increasing what you may receive in closing costs.

First-time Buyers

There are lots of first-time buyers in the market now, and they are driving the action.  It's clear that it's harder to get a mortgage now than it was when those of us who are older bought our first homes, and the qualification standards are stiffer, even though rates are lower.

Because they are buying for the first time, they are often more hesitant to buy in situations where they might not feel comfortable.  Therefore, they often request more in the way of repairs, tests, and allowances for improvements.  In addition, having buyers ask for contributions to closing costs is a trend that we have seen in increasing numbers.  Sellers should not be insulted, since first-time buyers have no history, so no way of knowing that such a proposition might seem aggressive.

Since beginning buyers often look at more options, open houses have been very popular.  There may also be more repeat showings, with relatives and friends coming to weigh in on the potential purchase.  The closing can take longer as well, since documentation requests may be unfamiliar and take more time to fulfill.

Whatever the downsides, there is a great upside:  They are very motivated to buy and own their own homes, and they are out there!

Seller Concessions

One of the new realities of the current real estate market is that buyers often ask for concessions, monetary and otherwise, from sellers.  It used to be that they asked for things to be included or fixed, based on the inspection.  Now, they also may ask for the seller to pay some or all of the closing costs.  This is often so that the purchase price is higher, and allows them to qualify for a higher mortgage amount.

We have seen some issues at the closing with these requests.  The sellers don't always seem to realize that the purchase price will be the basis for the conveyance tax, the land records, and the commission.  It's the amount at the top of the sales contract that governs all those amounts.  We, for instance,  have other brokers to pay in almost all cases.  Sometimes it's a referral, sometimes a co-broke, either inside or outside the company.  The commission offered is on the full amount, and we are responsible for it, whether or not the seller made concessions.  While I understand why sellers wouldn't always like that, I don't see the difference between a concession made in cash or at closing from a concession made during inspections or even during negotiations.  It happens, and it isn't our fault.  And we shouldn't have to take the co-broke commission difference out of our pocket.

There are a lot of ways to get upset during the length of a sales transaction.  But, please, don't shoot the messenger.  We're trying to help.